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Gold recovers from 4-month low, tracks oil price rally

A salesgirl shows a gold necklace to customers at a jewellery showroom in Indian city of Chandigarh. Reuters

Gold inched up on Monday, moving away from a near 4-month trough touched in the previous session, drawing support from a drop in equities and a jump in crude oil prices.

Spot gold was up 0.3 per cent at $1,278.74 per ounce, as of 0927 GMT, having touched $1,270.63 in the previous session - its lowest since Dec.27, 2018.

Asian shares slipped, weighed down by underperforming Chinese stocks, while oil prices rallied on news the United States is likely to ask all importers of Iranian oil to end their purchases or face sanctions.

“While the intensity of correlation between oil and gold has reduced, buying in one asset class is supporting the other,” Trivedi said.

Gold is closely correlated to oil as the metal is often seen as a hedge against oil-led inflation.

However, a firmer dollar capped gains for the metal after data showed the United Sates’ economic growth might have picked up in the first quarter.

US retail sales increased the most in 1-1/2 years in March, the latest indication that economic growth picked up in the first quarter after a false start, data showed on Thursday.

“The disaster over the weekend in Sri Lanka is providing some safe-haven demand besides some interest in physical buying, which is also offering support to gold prices,” said Afshin Nabavi, senior vice president at MKS SA.

Gold is considered a safe investment during political or economic uncertainties.

Attacks on churches and luxury hotels in Sri Lanka on Sunday killed 290 people and wounded more than 500.

“However, the metal is facing strong resistance at $1,280, which is a big barrier. Another reason the market is not rallying is the stronger dollar,” Nabavi said.

Meanwhile, speculators switched to a net short position in COMEX gold in the week to April 16, the US Commodity Futures Trading Commission (CFTC) said on Friday.

Also, holdings of SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, dropped to 751.68 tonnes on Thursday, the lowest levels seen since Oct. 26.

“Gold is hovering between the 100-day exponential moving average around $1,285 and 200-day exponential moving average around $1,275, below this we can look for $,1260,” Trivedi of Anand Rathi said.

Elsewhere, silver rose 0.7 per cent to $15.02 per ounce. Platinum gained 0.7 per cent to $906.75 per ounce.

Palladium was steady at $1,422 an ounce, having earlier climbed to its highest in over two weeks at $1,428.98 an ounce.

Gold is witnessing an oversold or corrective bounce in Asia, as expected, with prices currently trading at $1,278 per Oz. The 0.19 per cent gain on the day could be extended further to $1,281-$1,285 resistance range, as the 1H relative strength index (RSI) is now reporting bullish conditions with an above-50 print.

Further, the bullish divergence of the 4-hour chart RSI, confirmed last week, is now looking more pronounced with the indicator closing on 50 levels.

Any gains to $1,281-$1,285 range, however, could be short-lived, as the last week’s US retail sales and jobless claims have weakened prospects of a recession in the world’s biggest economy, meaning the American dollar will likely remain bid in the next few days, capping gains in the yellow metal. Meanwhile the ABN AMRO analysts are expecting an average Brent oil price of $70/bbl in 2019 and suggest that from current levels, both upside and downside risks are emerging.

“Downside risks contain Trump’s comments towards OPEC to rise production and cap the oil price. Upside risks are due to a possible final trade agreement between US and China as well as the insufficient level of investments in future exploration of – mainly – heavy sour oil.”

“We remain positive on gold prices. First of all, our expectations of a weaker US dollar will lift price. Also, a less hawkish central banks and a more constructive outlook on the Chinese yuan will be supportive. And finally, the positive technical picture is also positive for price.”

Oil prices rallied 3 per cent on Monday to their highest since late 2018 as the United States was set to announce that all imports of Iranian oil must end or be subject to sanctions

Hedge funds and money managers raised their net long US crude futures and options positions in the week to April 16 and switched to a net short position in COMEX gold in the week to April 16.